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Chapter 13, Page 212
account that automatically sweeps all funds in a company’s checking account
above a predetermined minimum into an interest-bearing account.
Keep your business plan current in case an unexpected cash crisis forces an
entrepreneur to seek emergency financing.
Consider using You Be the Consultant: “Controlling Employee Theft” at this point.
Conclusion
Chapter 13, Page 213
Part 3: Chapter Exercises
Hands On… How To “Manage Cash Flow in a Highly
Seasonal Business”
1. What impact do highly seasonal sales have on a small company’s cash flow?
2. What other advice can you offer owners of seasonal businesses about coping
with the effects of their companies’ highly irregular sales patterns? About
managing cash flow in general?
1. Help Rowena put together a cash budget for the six months beginning in April.
(LO 4) (AACSB: Application of knowledge)
Copyright © 2019 Pearson Education, Inc.
Chapter 13, Page 214
Cash Budget
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Sales
$
24,780
$
20,900
$
21,630
$
23,550
$
24,900
$
29,870
$
27,500
$
25,800
$
21,500
Credit Sales
$
15,611
$
13,167
$
13,627
$
14,837
$
15,687
$
18,818
$
17,325
$
16,254
$
13,545
Cash Receipts
Collections
1 - 30 days
$
9,050
$
9,569
$
11,479
$
10,568
$
9,915
$
8,262
31 - 60 days
$
3,679
$
4,006
$
4,235
$
5,081
$
4,678
$
4,389
61 - 90 days
$
1,053
$
1,090
$
1,187
$
1,255
$
1,505
$
1,386
Cash Sales
$
8,714
$
9,213
$
11,052
$
10,175
$
9,546
$
7,955
Other Receipts
$ -
$ -
$ -
$ -
$ -
$ -
Total Cash Receipts
$
22,496
$
23,878
$
27,953
$
27,079
$
25,644
$
21,992
Cash Disbursements
CGS
$
14,276
$
15,543
$
16,434
$
19,714
$
18,150
$
17,028
Wages & Salaries
$
3,550
$
4,125
$
5,450
$
6,255
$
6,060
$
3,525
Utilities
$
950
$
950
$
950
$
950
$
950
$
950
Rent
$
2,250
$
2,250
$
2,250
$
2,250
$
2,250
$
2,250
Truck Loan
$
427
$
427
$
427
$
427
$
427
$
427
Office Supplies
$
125
$
125
$
125
$
125
$
125
$
125
Maintenance
$
75
$
75
$
75
$
75
$
75
$
75
Uniforms/cleaning
$
80
$
80
$
80
$
80
$
80
$
80
Office cleaning service
$
85
$
85
$
85
$
85
$
85
$
85
Internet/computer service
$
225
$
225
$
225
$
225
$
225
$
225
Computer Supplies
$
75
$
75
$
75
$
75
$
75
$
75
Insurance Payment
$
1,200
$ -
$ -
$ -
$ -
$
1,200
Advertising
$
450
$
450
$
450
$
450
$
450
$
450
Tax Payments
$ -
$ -
$
3,140
$ -
$ -
$ -
Legal and Accounting fees
$
250
$
250
$
250
$
250
$
250
$
250
Miscellaneous Expenses
$
95
$
95
$
95
$
95
$
95
$
95
Other Expenses
$ -
$ -
$ -
$ -
$ -
$ -
Total Cash Disbursements
$
24,113
$
24,755
$
30,111
$
31,056
$
29,297
$
26,840
Chapter 13, Page 215
End of Month Balance
Beginning Cash Balance
$
10,685
$
9,069
$
8,192
$
6,034
$
2,057
$
1,500
+ Cash Receipts
$
22,496
$
23,878
$
27,953
$
27,079
$
25,644
$
21,992
-Cash Disbursements
$
(24,113)
$
(24,755)
$
(30,111)
$
(31,056)
$
(29,297)
$
(26,840)
EOM Cash Balance
$
9,069
$
8,192
$
6,034
$
2,057
$
(1,596)
$
(3,348)
Borrow
$ -
$ -
$ -
$ -
$
3,096
$
7,970
Repay
$ -
$ -
$ -
$ -
$ -
$
3,122
Final EOM Cash Balance
$
9,069
$
8,192
$
6,034
$
2,057
$
1,500
$
1,500
Monthly Surplus/(Deficit)
$
(1,616)
$
(877)
$
(2,158)
$
(3,977)
$
(3,653)
$
(4,848)
Chapter 13, Page 216
2. Does it appear that Rowena’s business will remain solvent, or could the company
be heading for a cash crisis? (LO 4) (AACSB: Analytical thinking)
3. What suggestions can you make to help Rowena improve her company’s cash
flow? (LO 4) (AACSB: Analytical thinking)
1. Identify the factors that led Holt of California to become a victim of employee
theft and embezzlement. What impact does this crime have on a company’s cash
flow? (LO 5) (AACSB: Application of knowledge)
2. Are small businesses more likely than large ones to be victims of employee theft?
Explain. (LO 5) (AACSB: Reflective thinking)
3. List at least five steps, in addition to the ones described here, that entrepreneurs
should take to prevent their businesses from becoming victims of employee theft and
embezzlement. (LO 5) (AACSB: Reflective thinking)
Copyright © 2019 Pearson Education, Inc.
Chapter 13, Page 217
Monitor inventory closely.
Use technology to discourage theft.
Set up a hotline.
opportunities.
13-1. Why must entrepreneurs concentrate on effective cash flow management?
(LO 1) (AACSB: Reflective thinking)
Copyright © 2019 Pearson Education, Inc.
Chapter 13, Page 218
Cash is the most important, yet least productive, asset that a small business owns.
Businesses must have enough cash to meet their obligations or run the risk of declaring
bankruptcy. It is entirely possible for a business to earn a profit and still go out of business
by running out of cash.
13-2. Explain the difference between cash and profit. (LO 2) (AACSB: Reflective
thinking)
13-3. Outline the steps involved in developing a cash budget. (LO 3) (AACSB:
1. Determining an adequate minimum cash balance
13-4. How can an entrepreneur launching a new business forecast sales? (LO 3)
(AACSB: Reflective thinking)
The startup could do research on similar firms and their sales patterns in the first year of
13-5. What are the “big three” of cash management? (LO 4) (AACSB: Reflective
thinking)
Chapter 13, Page 219
13-6. What effect do the big three of cash management have on a company’s cash
flow? (LO 4) (AACSB: Reflective thinking)
Accounts Receivable: Extending credit to customers.
Cash flow is greatly affected due to the time lag between the sale and the actual collection
13-7. How can bartering improve a company’s cash position? (LO 5) (AACSB:
Reflective thinking)
Bartering is the exchange of goods and services for other goods and services rather than
13-8. What should be a small business owner’s primary concern when investing
surplus cash? (LO 5) (AACSB: Reflective thinking)
Part 5: Case Studies
The following text case may be used for lecture and assignments for topics presented in
this chapter.
Case 5: Intertech Construction Corporation
Case 7: Bluffton Pharmacy, Part 2
Part 6: Online Videos and Podcasts
Chapter 13, Page 220
These online videos may enhance class discussion and provide additional insight for the
chapter topics.
Manage Your Cash Flow 5:53 minutes
http://www.youtube.com/watch?v=tIWDpxK5cUI
How to Manage Cash Flow 9:37 minutes
http://www.youtube.com/watch?v=TdEMY5nxWCE
Prepare a Cash Budget Using Excel 11:33 minutes
http://www.youtube.com/watch?v=uKZN5KxdgkU
Poor Management of Accounts Receivable 1:42 minutes
http://www.youtube.com/watch?v=de8SiXOV6EA
Modernizing Inventory Management 5:03 minutes
http://www.youtube.com/watch?v=1d0O8MAMyAM
Small Business Bartering Tips 5:45 minutes
http://www.youtube.com/watch?v=WdmfIq6NEEA
How to Properly Manage Cash Flow to Stop Employee Theft 2:49 minutes
http://www.youtube.com/watch?v=baL2rSQMe7k
How to Raise Capital: The #1 Skill of an Entrepreneur 10:50 minutes
http://www.youtube.com/watch?v=yQLhWtgAT0A
Links to additional online resources are available on the companion Web site at
